Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
QUARTER ENDED DECEMBER 30, 1994
Commission File No. 1-4850
COMPUTER SCIENCES CORPORATION
Incorporated in the State of Nevada
Employer Identification No. 95-2043126
2100 East Grand Avenue
El Segundo, California 90245
Telephone (310) 615-0311
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
50,990,834 shares of Common Stock, $1.00 par value, were
outstanding on December 30, 1994.
COMPUTER SCIENCES CORPORATION
Index to Form 10-Q
Page
Number
Part I. Financial Information
Consolidated Condensed Balance Sheets -
December 30, 1994 and April 1, 1994 3
Consolidated Condensed Statements of Income -
Third quarter and nine months ended
December 30, 1994 and December 31, 1993 4
Consolidated Condensed Statements of Cash Flows -
Nine months ended December 30, 1994 and
December 31, 1993 5
Notes to Consolidated Condensed Financial Statements 6
Management's Discussion and Analysis of Results of
Operations and Financial Condition 8
Part II. Other Information
Item 6 - Exhibits and Reports on Form 8-K 11
Signatures 12
Exhibits:
Exhibit 11 - Calculation of Earnings Per Share
Exhibit 27 - Financial Data Schedule
Exhibit 28 - Additional Information - Revenues
by Market Sector
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PART I. FINANCIAL INFORMATION
COMPUTER SCIENCES CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
($ in thousands)
ASSETS
Dec. 30, April 1,
1994 1994
(unaudited)
CURRENT ASSETS:
Cash and cash equivalents $28,479 $126,820
Receivables 802,365 665,253
Prepaid expenses and other current assets 85,005 65,046
___________ ___________
Total current assets 915,849 857,119
___________ ___________
PROPERTY AND EQUIPMENT, at cost 809,253 695,796
Less-Accumulated depreciation and amortization 364,600 302,760
___________ ___________
Net property and equipment 444,653 393,036
___________ ___________
EXCESS OF COST OF BUSINESSES ACQUIRED
OVER RELATED NET ASSETS, NET 360,139 324,145
OTHER ASSETS 239,485 232,080
___________ ___________
$1,960,126 $1,806,380
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term debt $169,176 $17,772
Current maturities of long-term debt 10,373 32,685
Accounts payable 105,120 228,674
Accrued payroll and related costs 147,555 128,478
Other accrued expenses 169,765 175,005
Advance contract payments 29,132 24,454
Income taxes payable 50,469 54,176
___________ ___________
Total current liabilities 681,590 661,244
___________ ___________
LONG-TERM DEBT, NET 309,009 273,344
___________ ___________
OTHER LONG-TERM LIABILITIES 71,326 66,112
___________ ___________
STOCKHOLDERS' EQUITY (Note A):
Common stock issued, par value $1.00 per share 51,205 50,807
Other stockholders' equity 846,996 754,873
___________ ___________
Total stockholders' equity 898,201 805,680
___________ ___________
$1,960,126 $1,806,380
<FN>
See accompanying notes. -3-
COMPUTER SCIENCES CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF INCOME (unaudited)
($ in thousands except earnings per share)
Third Quarter Ended Nine Months Ended
_____________________ _________________________
Dec. 30, Dec. 31, Dec. 30, Dec. 31,
1994 1993 1994 1993
_________ _________ ___________ ___________
Revenues $827,901 $621,361 $2,354,532 $1,851,767
_________ _________ ___________ ___________
Costs of services 661,815 494,176 1,877,354 1,494,737
Selling, general and
administrative 73,471 56,121 223,567 159,640
Depreciation and amortization 41,812 33,292 119,644 93,369
Interest, net (Note B) 7,475 2,811 18,470 7,773
_________ _________ ___________ ___________
Total costs and expenses 784,573 586,400 2,239,035 1,755,519
_________ _________ ___________ ___________
Income before taxes 43,328 34,961 115,497 96,248
Taxes on income 16,580 13,285 44,004 38,143
_________ _________ ___________ ___________
Net earnings before cumulative
effect of accounting change 26,748 21,676 71,493 58,105
Cumulative effect of accounting
change for income taxes
(Note C) 4,900
_________ _________ ___________ ___________
Net earnings $26,748 $21,676 $71,493 $63,005
========= ========= =========== ===========
Earnings per common share
before cumulative effect
of accounting change $0.51 $0.42 $1.37 $1.14
Cumulative effect of accounting
change for income taxes
(Note C) 0.09
_________ _________ ___________ ___________
Earnings per common share
(Notes A and D) $0.51 $0.42 $1.37 $1.23
========= ========= =========== ===========
<FN>
See accompanying notes.
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COMPUTER SCIENCES CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (unaudited)
($ in thousands)
Nine Months Ended
_________________________
Dec. 30, Dec.31,
1994 1993
___________ ___________
Cash flows from operating activities:
Net earnings $71,493 $63,005
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 119,644 93,369
Provision for losses on accounts receivable 11,436 5,085
Changes in assets and liabilities, net of
effects of acquisitions:
Increase in assets (170,974) (27,203)
Decrease in liabilities (4,807) (10,735)
___________ ___________
Net cash provided by operating activities 26,792 123,521
___________ ___________
Investing activities:
Short-term investments 18,229
Purchase of property, plant and equipment (149,289) (89,799)
Purchased and internally developed software (12,190) (24,123)
Acquisitions, net of cash acquired (22,159) (96,750)
Other investing cash flows (4,158) 2,570
___________ ___________
Net cash used in investing activities (187,796) (189,873)
___________ ___________
Financing activities:
Paydown of commercial paper, net (1,941)
Borrowings under lines of credit, net 50,339 6,780
Proceeds from term debt issuance 150,000
Payment of outsourcing financing (114,403)
Principal payments on long-term debt (42,143) (10,509)
Proceeds from exercise of stock options 11,858 13,337
Other financing cash flows 8,953 62
___________ ___________
Net cash provided by financing activities 62,663 9,670
___________ ___________
Net decrease in cash and cash equivalents (98,341) (56,682)
Cash and cash equivalents at beginning of year 126,820 111,477
___________ ___________
Cash and cash equivalents at end of period $28,479 $54,795
=========== ===========
<FN>
See accompanying notes.
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COMPUTER SCIENCES CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
($ in thousands except per share amounts)
(A) On December 6, 1993, the Company's Board of Directors declared
a three-for-one stock split in the form of a 200 percent stock
dividend on the Company's common stock, with no change in par
value. The dividend was distributed January 13, 1994 to
shareholders of record as of December 22, 1993. All per share
amounts contained in the statements of income and the
accompanying notes are based on the new number of shares. No
other dividends were paid or declared during the periods
presented. There were 51,204,677 shares at December 30, 1994
and 50,807,452 shares at April 1, 1994 of $1.00 par value
common stock issued with 213,843 and 201,752 shares,
respectively, of treasury stock.
(B) Interest, net consists of the following:
3rd Quarter Ended Nine Months Ended
------------------ ------------------
Dec 30, Dec 31, Dec 30, Dec 31,
1994 1993 1994 1993
-------- -------- -------- --------
Interest income $ (401) $(1,756) $(1,694) $(5,145)
Interest expense 7,876 4,567 20,164 12,918
-------- -------- -------- --------
Total $ 7,475 $ 2,811 $18,470 $ 7,773
======== ======== ======== ========
(C) The Company adopted Statement of Financial Accounting
Standards (SFAS) No. 109, "Accounting for Income Taxes,"
effective April 3, 1993. The cumulative financial statement
effect of adopting SFAS No. 109 was to increase the Company's
net earnings by $4.9 million, or $0.09 per share for the
quarter ended July 2, 1993.
(D) Primary earnings per common share are based on the weighted
average number of common stock and common stock equivalent
shares (dilutive stock options) outstanding of 52,334,000 and
51,186,000 respectively, for the nine months ended December
30, 1994, and December 31, 1993 (see Part II - Exhibit 11).
(E) Cash payments for interest on indebtedness were $17,034 and
$13,799, respectively, for the nine months ended December 30,
1994, and December 31, 1993. Cash payments for taxes on
income were $38,769 and $44,502, respectively, for the nine
months ended December 30, 1994, and December 31, 1993.
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(F) During the second quarter, the Company, through its affiliate,
CSC Enterprises, renewed the credit agreements which provide
standby support for its commercial paper program. The new
standby agreements expire during September 1995 and September
1998 in the amounts of $100 million and $150 million,
respectively. In accordance with the standby agreements in
place, on December 30, 1994, $100 million of commercial paper
was classified as short-term debt, versus none on April 1, 1994.
(G) Several items arose subsequent to the end of the fiscal
quarter. The Company has entered into an outsourcing
agreement with Hughes Aircraft Company ("Hughes") effective
January 28, 1995. The Company estimates that this agreement
will generate an additional $1.3 billion of revenue over its
initial eight-year term. On January 2, 1995, the Company
acquired a majority interest in Ploenzke AG, a German computer
services firm with annual revenues of approximately $170
million. On January 3, 1995, the Company borrowed $100
million to fund the acquisition of certain assets under the
Hughes outsourcing agreement and the acquisition of Ploenzke
AG. On January 13, 1995, the Company filed a Form S-3
registration statement with the Securities and Exchange
Commission for the sale of 4 million shares of its common
stock. The proceeds from the sale will be added to the
general funds of the Company and will be used for general
corporate purposes. Pending such application, the Company
intends to use the proceeds to reduce indebtedness temporarily
and invest in short-term instruments.
(H) The financial information reported, which is not necessarily
indicative of the results for a full year, is unaudited but
includes all adjustments which the Company considers necessary
for a fair presentation. All such adjustments are normal
recurring adjustments.
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Third Quarter of Fiscal 1995 Versus Third Quarter of Fiscal 1994
Revenues
During the quarter ended December 30, 1994, the Company's total
revenues of $827.9 million increased 33.2%, or $206.5 million, over
the same period last year. Federal revenue totaled $367.8 million,
up 29.6% from last year's $283.8 million due to the acquisition
during December, 1993 of Atlantic Research Corporation's
Professional Services Group (PSG) and the commencement since the
prior year third quarter of a number of contracts, including the
provision of information systems support to the NASA Marshall Space
Flight Center.
Commercial revenue from domestic operations was $285 million for
the third quarter versus $255.4 million for the prior year quarter,
with growth in consulting revenues offset by a slight decrease in
outsourcing revenues from existing outsourcing contracts as service
efficiencies were achieved. International revenue increased to
$175.1 million from $82.2 million reflecting the commencement of
the Company's outsourcing contract with British Aerospace (BAe)
during April, 1994, the acquisition of Computer Sciences Australia
(CSA) during November, 1993 and other revenue growth.
During the current fiscal year, the Company has been awarded
federal contracts, including the Marshall Space Flight Contract
mentioned above, that it estimates will generate approximately
$1.5 billion of revenues over their terms, and commercial
outsourcing contracts that will generate approximately $2 billion
of revenues over their terms.
Costs and Expenses
As a percentage of revenue, costs of services were 79.9% for the
quarter ended December 30, 1994, versus 79.5% for the same quarter
last year. An increase for the Company's federal and U.S.
outsourcing operations was partially offset by improvements for
other U.S. commercial and international activities.
Selling, general and administrative expenses increased to $73.5
million for the quarter ended December 30, 1994, up from $56.1
million for the same period last year. The largest increases were
in the Company's outsourcing and consulting operations due to
increased marketing and proposal costs as the Company pursued new
business opportunities.
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The Company's depreciation and amortization expense increased to
$41.8 million for the current quarter, up from $33.3 million last
year. The increase is primarily the result of the BAe contract and
PSG and CSA acquisitions, as well as other internal business
growth.
Net interest expense increased to $7.5 million for the current
quarter from $2.8 million for the same quarter last year. The
increase is due to both decreased interest income and increased
interest expense as cash on hand and increased borrowings were used
to supplement cash flows from operations. The increased borrowings
helped to fund the purchase of outsourcing assets from BAe and to
acquire CSA and PSG during the second quarter of fiscal 1994.
Income Before Taxes
Income before taxes was $43.3 million, up $8.4 million or 23.9%
over last year's third quarter, reflecting the revenue growth
achieved, offset somewhat by the growth in costs of services and
higher net interest expense described above.
Net Earnings
Net earnings were $26.7 million for the quarter ended December 30,
1994, up $5.1 million or 23.4% over the same quarter last year.
The effective tax rate was 38.3%, versus 38% for the prior period.
Third quarter earnings per share were 51 cents, compared to 42
cents for the prior period, on a greater number of shares
outstanding.
Cash Flows
Cash flows from operating activities were $26.8 million for the
nine months ended December 30, 1994, compared to $123.5 million
during the same period last year. The lower operating cash flow is
mainly the result of higher accounts receivable and other current
assets related to the Company's increased federal and international
operations.
The Company's cash outflows for investing activities were $187.8
million for the nine months versus $189.9 million during the same
period last year. Purchases of property, plant and equipment were
higher, in keeping with company growth, particularly in the asset-
intensive area of information technology outsourcing. There was
also an absence of short-term investment purchases compared to last
year. These factors were partially offset by lower acquisition-
related expenditures.
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Cash provided by financing activities was $62.7 million for the
nine months versus $9.7 million during the same period last year.
Year-to-date activity includes the payment of $114 million of BAe
outsourcing financing. Additionally, a $150 million private
placement of fixed-rate, term debt was issued by CSC Enterprises,
an affiliate of the Company. The proceeds of this placement were
initially used to repay commercial paper borrowings which have been
subsequently re-borrowed.
Financial Condition
During the first nine months of fiscal 1995, the Company's capital
needs included $114 million for the payment related to the BAe
outsourcing contract and $176 million for additional working
capital. These needs were met by the use of operating cash flow,
existing cash and additional debt. As a result of the additional
borrowing, the Company's debt-to-total-capitalization ratio
increased to 35% at December 30, 1994, versus 29% at the prior
fiscal year-end.
In all other respects, the Company's financial condition has not
changed significantly since the fiscal year-end. It is
management's opinion that the Company will be able to fund its cash
needs from operating activities and from short-term borrowings. It
is also management's opinion that any major additional requirements
can be financed by the use of unused borrowing capacity or by the
issuance of new CSC securities.
Subsequent Events
Several items arose subsequent to the end of the fiscal quarter.
The Company has entered into an outsourcing agreement with Hughes
Aircraft Company ("Hughes") effective January 28, 1995. The Company
estimates that this agreement will generate an added $1.3 billion
of revenue over its initial eight-year term, in addition to
projected revenue of $200 million under the superseded pre-existing
agreement with a Hughes affiliate. On January 2, 1995, the Company
acquired a majority interest in Ploenzke AG, a German computer
services firm with annual revenues of approximately $170 million.
On January 3, 1995, the Company borrowed $100 million to fund the
acquisition of certain assets under the Hughes outsourcing
agreement and the acquisition of Ploenzke AG. On January 13, 1995,
the Company filed a Form S-3 registration statement with the
Securities and Exchange Commission for the sale of 4 million shares
of its common stock. The proceeds from the sale will be added to
the general funds of the Company and will be used for general
corporate purposes. Pending such application, the Company intends
to use the proceeds to reduce indebtedness temporarily and invest
in short-term instruments.
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Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
Exhibit No. 11 - Calculation of Earnings Per Share
Exhibit 27 - Financial Data Schedule
Exhibit No. 28 - Additional Exhibits
(i) Revenues by Market Sector
b. Reports on Form 8-K:
There were no Form 8-K's filed for the third quarter
of fiscal 1995.
There were two Form 8-K's filed subsequent to the
third quarter of fiscal 1995. On January 19, 1995
the Company confirmed that William R. Hoover,
chairman of the board of directors and chief
executive officer, will retire March 31, 1995 from
his role as chief executive officer. He will be
succeeded by Van B. Honeycutt, the Company's
president and chief operating officer.
On January 20, 1995 the Company disclosed
summarized results of operations for the third
quarter of fiscal 1995, in connection with its
registration statement for the sale of 4 million
shares of its common stock filed with the
Securities and Exchange Commission on Form S-3 on
January 13, 1995.
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Signatures
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
COMPUTER SCIENCES CORPORATION
Registrant
Date: February 10, 1995 By:/s/Denis M. Crane
Denis M. Crane
Vice President and Controller
Chief Accounting Officer
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